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2020 (2) TMI 422 - AT - Income TaxDisallowance of claim u/s 10AA - SEZ unit - Scope of the term "Service" - trading activity - The AO viewed that the assessee is not engaged in the manufacturing activity and only engaged in the trading activity. - HELD THAT:- In the absence of instructions and directions to implement the circular of Ministry of Commerce (supra), no deduction is permissible as per the Act. However the Act does not define the term ‘services’ in section 10AA. The SEZ Rules define the services and the activity of the assessee is covered under the definition of services. Therefore, the argument advanced by the Ld.DR is not tenable. Hence, respectfully following the view taken by this Tribunal in the assessee’s own case [2017 (4) TMI 867 - ITAT VISAKHAPATNAM] , we hold that the assessee is eligible for deduction u/s 10AA on the profits derived by SEZ Unit in respect of trading activity of importing the goods for reexport. Accordingly, the ground raised by the revenue on this issue is dismissed Addition made by the AO u/s 40(a)(ia) of the Act in respect of Ocean Freight charges paid to the agents of foreign shipping company for non deduction of tax at source - HELD THAT:- In the instant case section 172 is applicable, since the payment is made to Shipping Agents. The department has not called for the return of income of the non resident shipping owners at the time of assessment. Therefore, we are of the considered opinion that the payment is squarely covered by Circular No. 723 of CBDT and there is no case for deduction of tax u/s 194C or 195 and consequent disallowance u/s 40(a)(ia) of the Act. Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. Transfer pricing adjustment - Arms Length Price on sales and the interest charged on outstanding receivables treating the outstanding receivables as International transactions - Assessee has objected for adopting TNMM as MAM instead of CPM adopted by the assessee - HELD THAT:- In view of the fact that there are no external comparables available in the public domain, we hold that the assessee has rightly bench marked the ALP adopting the internal comparables and hold that the international transaction is at ALP and no interference is called for in the order of the Ld.CIT(A). Accordingly, we uphold the order of the Ld.CIT(A) and dismiss the appeal of the revenue. TP adjustment is with regard to adjustment made by the TPO in respect of interest on receivables - HELD THAT:- In the instant case, the AO made TP adjustment in respect of interest on outstanding receivables that were received beyond the period of 180 days. The receivables are closely linked to the principal transaction of sale of goods. The AO did not consider the circumstances surrounding the receivables and did not consider that the outstanding receivables are not unsecured loans / advances given to AEs. Even if it is considered that the receivables as international transactions, since, the same are to be received in foreign exchange the interest if any required to be applied following LIBOR or LIBRO plus method. However in the instant case, receivables represent the trade receipts but not the unsecured/ secured loans. In the case of trade receipts, the sale price is fixed including the realizable time period and hence, once the transactions are at ALP in respect of sales, no separate adjustment is required to be made in of sales receivables
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